Ancillary Activities Exemption – a change in approach for commodity derivatives and emission allowances firms


On 29 May 2024, the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) (Amendment) Order 2024 (SI 2024/719) (the “2024 Order”) was published alongside an explanatory memorandum. The 2024 Order omits prospective amendments to the UK regulated activities perimeter, with the effect that the planned changes to the ancillary activities regime for firms trading commodity derivatives or emission allowances have been indefinitely delayed. This followed significant concerns from industry that moving to a qualitative approach to determining whether firms require authorisation for trading in commodity derivatives and emission allowances would be unworkable in practice. HM Treasury has indicated that it will work with the FCA to implement a new regime in its place.


Under the MiFID II framework as implemented in the UK, firms trading commodity derivatives or emission allowances where their activities are ancillary to their commercial business are exempt from the requirement to be authorised as an investment firm. This is known as the ancillary activity exemption (“AAE”). To be able to benefit from the exemption certain criteria must be fulfilled. This is known as the ancillary activity test (“AAT”). Those criteria are set out in Schedule 3 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“RAO”) and the UK version of Commission Delegated Regulation (EU) 2017/592 (“RTS 20”) (as it forms part of assimilated EU law).

The changes

In May 2023, HM Treasury made legislation related to the AAE, with the intent of simplifying the exemption rules by omitting references to the detailed technical standards in RTS 20 which determine when a firm’s activity is considered to be ancillary, and also to remove the exclusion for firms from needing to carry out market threshold calculations under article 72J of the RAO. These changes followed consultation as part of the Wholesale Markets Review (“WMR”) and were due to take effect from 1 January 2025.

The FCA’s subsequent December 2023 consultation on proposals for the commodity derivatives regime, including on the revocation of RTS 20 and new guidance on the application of the AAE, revealed significant concerns about a movement towards a principles-based, qualitative approach for determining firm authorisation requirements. To address these concerns, HM Treasury has now decided to delay the implementation of the new ancillary activities regime.

What should firms know now?

HM Treasury will collaborate with the FCA and market participants to create a regime that aligns with WMR conclusions and industry concerns, aiming for implementation by 1 January 2027.

In the interim, firms can continue using the existing AAT to assess their eligibility for the AAE. This will mean that there continues to be a quantitative test for determining whether a firm can benefit from the exemption that will operate as it has done since the UK left the EU. However, the requirement for firms to annually notify the FCA of their ancillary activity status will still be removed from legislation as scheduled on 1 January 2025.

If you have any questions about the ancillary activities regime, please get in touch with the key contacts listed, or your usual contacts at CMS.


Article co-authored by Anna Burdzy, Trainee Solicitor at CMS